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Tag: Auto loans

  • Turn Over a New Financial Leaf this Fall: Strategies for Credit Score Success

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    As the days grow shorter and autumn settles in, it’s a good time to shine a light on a topic that can feel mysterious: your credit score. For many, credit can feel confusing or even intimidating, but understanding how it works and why it matters can be an important step toward strengthening your financial health journey.

    How Your Credit Score Impacts Your Financial Journey

    Your credit score is a three-digit number used by lenders, landlords, insurance companies, mobile phone providers, and financial institutions to assess your reliability. A higher score can help you qualify for lower interest rates and better loan terms, saving you money in interest and making it easier to achieve major financial goals such as buying a home or car.

    Establishing good credit means building a record of responsible usage. Using your credit card and paying your bill on time demonstrates financial responsibility to lenders. On the other hand, missing payment deadlines or not meeting the minimum amount due can negatively impact your score.

    Understanding the Factors Behind Your Credit Score

    Credit scores typically range from 300 to 850. The better your score, the more options you may have with lenders. Here’s what usually influences your score:

    • Payment History: Consistently paying bills on time has a positive impact, while late or missed payments can lower your score.
    • Credit Utilization: Using a smaller portion of your total available credit is better for your score; high balances relative to your total credit limits can be a negative factor.
    • Total Debt: Lower overall debt is viewed more favorably, while carrying high debt can reduce your score.
    • Types of Credit Accounts: Having a mix of credit accounts, such as credit cards, auto loans, and mortgages, can strengthen your score.
    • Length of Credit History: A longer track record of responsible credit use contributes positively to your score.
    • Recent Credit Applications: Applying for new credit  can temporarily lower your score.
    • Credit Inquiries. Soft inquiries, like checking your own credit or receiving pre-approved offers, don’t affect your score. Hard inquiries, such as applying for a loan or credit card, may lower your score slightly, but the impact fades over time and drops off your report after two years.

    If your credit score is on the lower end, don’t worry—there are steps you can take to help improve it.

    Credit Smart Habits 

    • Pay your bills on time. Payment history is an important factor when it comes to calculating your credit score. If you struggle with meeting payment deadlines, consider setting reminders or enrolling in autopay.
    • Pay down your debt. Your credit utilization—meaning the size of your card balance—is the second biggest factor in most credit scoring models. Create a plan to pay down high-interest debt first.
    • Monitor your credit with Chase Credit Journey®. Regularly checking your credit report can help you spot areas of improvement and fix errors. Chase Credit Journey is a free tool that lets you monitor your score without impacting it, and provides alerts if your personal information is exposed in a data breach. It’s free for everyone, no Chase account required.

    Turning Credit Concerns into Financial Wins

    Building credit doesn’t have to be spooky and mysterious. With patience and smart financial habits, you can improve your score and unlock financial opportunities. This fall, take steps to understand and strengthen your credit.

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  • Should you buy or lease a new car?

    Should you buy or lease a new car?

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    What happens at the end of a car lease

    There can be unpleasant surprises at the end of a leasing term, Wallcraft added. The vehicle will be examined carefully for any damage, and if you exceeded the mileage outlined in the contract, you’ll be hit with fees. “It can be a pretty surprising amount at the end of the whole thing,” Wallcraft said, “and there’s no way to get out of it.”

    When to buy a car in Canada

    When you finance a car to own it, however, you start with negative equity—you owe more on the car than it’s worth to sell—but after a certain amount of time, that equity turns in your favour. “It takes a few years, depending on the length of the financing term,” Wallcraft said. “It takes some time where you’ve paid off enough of the car that you can then sell it for what it’s worth.”

    For car lovers who want a fresh ride every three or four years, financing to own still has merits over leasing, Wiebe said. “Even with purchasing vehicles every three years, you can still come out ahead by purchasing and reselling, because at least you are building some equity by creating ownership of the car that you’re paying for,” he said. 

    “But for most young people, buying and owning for a longer period is going to really free you up to be able to put money elsewhere, especially towards longer-term savings.”

    Pros and cons of leasing an EV

    As for leasing an electric vehicle (EV), Wallcraft called the financial pros/cons analysis “less predictable” in this relatively new market. Residual values of EVs have yet to be fully understood, she said—the value the car holds over time, which lease payments are based on.
    But lease contracts are very hard to break, Wallcraft noted. So if you don’t like the EV lifestyle and all it entails, you’re stuck or punished.

    “I can’t imagine how difficult it would be to try to offload an EV lease and try to find somebody who wants to take that over when there’s really only 10% of the market that’s showing a strong interest in EVs today,” Wallcraft said. “That will change over time, but that would be extremely difficult. Better to finance at a rate you can afford, and then, even if you haven’t fully paid it down, at least the car is yours to make the decision about what to do with it.”

    So who is leasing for?

    Wealthy customers, mostly. There’s less drama with a new vehicle under warranty, Wiebe pointed out. “Let’s say you’re getting into a high-paying profession that demands a lot of your time,” he said. “You’re not having to deal with buying and selling a vehicle. You sign up, have that simple payment, everything’s under warranty, and you kind of take back both the time and having to think about that area of your life.”

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    The Canadian Press

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  • Personal loan versus line of credit: Which should you choose? – MoneySense

    Personal loan versus line of credit: Which should you choose? – MoneySense

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    Personal loans vs. lines of credit

    With a personal loan, you borrow a single (fixed) amount of money from a bank or other lender. In return, you agree to pay back the principal plus interest over a certain period of time. This is called “installment credit.” Often, personal loans are for specific expenses. For example, you might apply for a car loan to buy a vehicle, or a debt consolidation loan to reduce your debt. Personal loans can be secured with collateral or unsecured, and the amount you’re eligible to receive is tied to your credit history and financial picture.

    When you’re approved for a line of credit, the bank, firm or lender extends a certain amount and you can borrow on an as-needed basis. Whatever you pay back, you can access the credit again, just like with a credit card. This is called “revolving credit.” You can use the money for any purpose you wish. Just like with loans, lines of credit can be secured or unsecured. 

    Here are the key differences at-a-glance.

    Personal loan Line of credit
    Type of credit Installment (non-revolving) Revolving
    Payment schedule A fixed amount over a fixed time period. As-needed, with a minimum monthly payment if you borrow
    Interest rates Fixed or variable Usually variable, and tied to the Prime Rate (which is currently 6.45%.)
    Interest applicability On the whole loan Only on what you borrow
    Extra fees Transaction or service fees Transaction or service fees
    Uses A need specified when applying Any purpose, no need to reveal

    Pros and cons of a personal loan

    Here are the pros and cons for personal loans.

    Pros

    • Interest rates can be lower than with credit cards
    • The fixed payment schedule ensures your loan will be repaid by a certain date.

    Cons

    • Typically higher interest rates than the majority of lines of credit.
    • To use more credit you have to refinance the loan or get a separate loan.
    • Lenders may charge fees for administering the loan.
    • There might be limitations on what you can spend the money on. A car loan is only for the purchase of a vehicle, which may seem obvious, but other loans may only be used for renovations or debt consolidation. 

    Pros and cons of a line of credit 

    Here are the pros and cons for lines of credit.

    Pros

    • Typically have lower interest rates than personal loans.
    • Interest is only charged on the portion of credit used.
    • There is no fixed term so you can pay it off at any time without penalty (as long as you pay the minimum monthly amount).
    • The credit is “revolving”, meaning that once you pay it back you can borrow again without refinancing.
    • You can use the money for any purpose.

    Cons

    • Interest rates are variable, based on the prime rate, so the loan rate will fluctuate. For example, you might have a line of credit where the interest rate is prime + 1.5%. As the prime rate changes, so will the total interest on your line of credit.
    • Lenders often offer the maximum amount which can make it easy to overborrow. 
    • As there is no fixed payment schedule, you must manage repayment on your own. 
    • A secured line of credit against your home (like a HELOC) will require a one-time appraisal as well as legal fees. 

    How interest rates work for loans and lines of credit

    The interest you pay on a personal loan or a line of credit will depend on many factors including the lender, your credit history, the terms of the credit and the prime rate (in the case of variable interest). That said, these are the variables you can negotiate to get the best rates. 

    For a personal loan:

    • Interest rate
      Look for the lowest rate available to you, and decide whether you prefer a fixed or variable rate. 
    • Fixed or variable rate
      Loans most often incur a fixed rate, meaning that the interest is the same throughout the term of the loan. With a variable-rate loan, the interest rate will change in the same direction as the prime rate. 
    • Secured or unsecured
      You might negotiate a lower interest rate if you can secure the loan with collateral, such as a home. 
    • Amortization period
      Amortization is the amount of time you take to pay off the loan and can range from six months to 60 months (five years) for personal loans, reports the Financial Consumer Agency of Canada. Adjusting your amortization period might affect your interest rate.
    • Fees or penalties
      Loans come with fees. With personal loans, for example, you may pay a penalty if you pay it off early.

    For lines of credit:

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    Keph Senett

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  • Driving underwater: Is your car worth less than what you’re paying for it? – MoneySense

    Driving underwater: Is your car worth less than what you’re paying for it? – MoneySense

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    “We saw some rare (price) appreciation during the time that consumers were purchasing these high-priced cars,” Daniel Ross of Canadian Black Book said of the auto market during the pandemic years. 

    Global supply chain disruptions stemming from the pandemic left the auto market with low inventory—and coupled with high consumer demand—auto prices surged, Ross said. 

    Some of those issues have since begun to normalize, allowing prices to ease, but it’s left some consumers owing more on their auto loan than the car is now currently worth. It’s referred to as negative equity, or being underwater. 

    As with the vast majority of vehicles, they’re a depreciating asset, so for those who purchased their car when prices were high, their “vehicle will continue to lose lots of value because it was probably overpriced at that time,” Ross said. 

    Should you trade in your car for a cheaper one?

    On average, people who were underwater saw the negative equity in their cars climb to a record high of USD$6,255 in the second quarter this year, compared with USD$4,487 in the second quarter of 2022, a July report from auto retail platform Edmunds showed.

    Trade-ins with negative equity also jumped, Edmunds said in its report.

    “If you’re in a negative equity position, it’s not easy to get out of that,” Ross said. 

    For drivers who are in this situation, it’s better to drive that car into the ground and just keep paying off the loan, he said.

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    The Canadian Press

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  • The Federal Reserve just cut interest rates by a half point. Here’s what that means for your wallet

    The Federal Reserve just cut interest rates by a half point. Here’s what that means for your wallet

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    People shop at a grocery store on August 14, 2024 in New York City. 

    Spencer Platt | Getty Images

    The Federal Reserve announced Wednesday it will lower its benchmark rate by a half percentage point, or 50 basis points, paving the way for relief from the high borrowing costs that have hit consumers particularly hard. 

    The federal funds rate, which is set by the U.S. central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates they see every day.

    Wednesday’s cut sets the federal funds rate at a range of 4.75%-5%.

    A series of interest rate hikes starting in March 2022 took the central bank’s benchmark to its highest in more than 22 years, which caused most consumer borrowing costs to skyrocket — and put many households under pressure.

    Now, with inflation backing down, “there are reasons to be optimistic,” said Greg McBride, chief financial analyst at Bankrate.com.

    However, “one rate cut isn’t a panacea for borrowers grappling with high financing costs and has a minimal impact on the overall household budget,” he said. “What will be more significant is the cumulative effect of a series of interest rate cuts over time.”

    More from Personal Finance:
    The ‘vibecession’ is ending as the economy nails a soft landing
    ‘Recession pop’ is in: How music hits on economic trends
    More Americans are struggling even as inflation cools

    “There are always winners and losers when there is a change in interest rates,” said Stephen Foerster, professor of finance at Ivey Business School in London, Ontario. “In general, lower rates favor borrowers and hurt lenders and savers.”

    “It really depends on whether you are a borrower or saver or whether you currently have locked-in borrowing or savings rates,” he said.

    From credit cards and mortgage rates to auto loans and savings accounts, here’s a look at how a Fed rate cut could affect your finances in the months ahead.

    Credit cards

    Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. Because of the central bank’s rate hike cycle, the average credit card rate rose from 16.34% in March 2022 to more than 20% today — near an all-time high.

    Going forward, annual percentage rates will start to come down, but even then, they will only ease off extremely high levels. With only a few cuts on deck for 2024, APRs would still be around 19% in the months ahead, according to McBride.

    “Interest rates took the elevator going up, but they’ll be taking the stairs coming down,” he said.

    That makes paying down high-cost credit card debt a top priority since “interest rates won’t fall fast enough to bail you out of a tight situation,” McBride said. “Zero percent balance transfer offers remain a great way to turbocharge your credit card debt repayment efforts.”

    Mortgage rates

    Although 15- and 30-year mortgage rates are fixed, and tied to Treasury yields and the economy, anyone shopping for a new home has lost considerable purchasing power in the last two years, partly because of inflation and the Fed’s policy moves.

    But rates are already significantly lower than where they were just a few months ago. Now, the average rate for a 30-year, fixed-rate mortgage is around 6.3%, according to Bankrate.

    Jacob Channel, senior economist at LendingTree, expects mortgage rates will stay somewhere in the 6% to 6.5% range over the coming weeks, with a chance that they’ll even dip below 6%. But it’s unlikely they will return to their pandemic-era lows, he said.

    “Though they are falling, mortgage rates nonetheless remain relatively high compared to where they stood through most of the last decade,” he said. “What’s more, home prices remain at or near record highs in many areas.” Despite the Fed’s move, “there are a lot of people who won’t be able to buy until the market becomes cheaper,” Channel said.

    Auto loans

    Even though auto loans are fixed, higher vehicle prices and high borrowing costs have stretched car buyers “to their financial limits,” according to Jessica Caldwell, Edmunds’ head of insights.

    The average rate on a five-year new car loan is now more than 7%, up from 4% when the Fed started raising rates, according to Edmunds. However, rate cuts from the Fed will take some of the edge off the rising cost of financing a car — likely bringing rates below 7% — helped in part by competition between lenders and more incentives in the market.

    “Many Americans have been holding off on making vehicle purchases in the hopes that prices and interest rates would come down, or that incentives would make a return,” Caldwell said. “A Fed rate cut wouldn’t necessarily drive all those consumers back into showrooms right away, but it would certainly help nudge holdout car buyers back into more of a spending mood.”

    Student loans

    Federal student loan rates are also fixed, so most borrowers won’t be immediately affected by a rate cut. However, if you have a private loan, those loans may be fixed or have a variable rate tied to the Treasury bill or other rates, which means once the Fed starts cutting interest rates, the rates on those private student loans will come down over a one- or three-month period, depending on the benchmark, according to higher education expert Mark Kantrowitz. 

    Eventually, borrowers with existing variable-rate private student loans may be able to refinance into a less expensive fixed-rate loan, he said. But refinancing a federal loan into a private student loan will forgo the safety nets that come with federal loans, such as deferments, forbearances, income-driven repayment and loan forgiveness and discharge options.

    Additionally, extending the term of the loan means you ultimately will pay more interest on the balance.

    Savings rates

    While the central bank has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate.

    As a result of Fed rate hikes, top-yielding online savings account rates have made significant moves and are now paying more than 5% — the most savers have been able to earn in nearly two decades — up from around 1% in 2022, according to Bankrate.

    If you haven’t opened a high-yield savings account or locked in a certificate of deposit yet, you’ve likely already missed the rate peak, according to Matt Schulz, LendingTree’s credit analyst. However, “yields aren’t going to fall off a cliff immediately after the Fed cuts rates,” he said.

    Although those rates have likely maxed out, it is still worth your time to make either of those moves now before rates fall even further, he advised.

    One-year CDs are now averaging 1.78% but top-yielding CD rates pay more than 5%, according to Bankrate, as good as or better than a high-yield savings account.

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  • Don’t expect ‘immediate relief’ from the Federal Reserve’s first rate cut in years, economist says. Here’s why

    Don’t expect ‘immediate relief’ from the Federal Reserve’s first rate cut in years, economist says. Here’s why

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    Recent signs of cooling inflation are paving the way for the Federal Reserve to cut rates when it meets next week, which is welcome news for Americans struggling to keep up with the elevated cost of living and sky-high interest charges.

    “Consumers should feel good about [an interest rate reduction] but it’s not going to deliver sizable immediate relief,” said Brett House, economics professor at Columbia Business School.

    Inflation has been a persistent problem since the Covid-19 pandemic, when price increases soared to their highest levels in more than 40 years. The central bank responded with a series of interest rate hikes that took its benchmark rate to the highest level in decades.

    The spike in interest rates caused most consumer borrowing costs to skyrocket, putting many households under pressure.

    More from Personal Finance:
    The ‘vibecession’ is ending as the economy nails a soft landing
    ‘Recession pop’ is in: How music hits on economic trends
    More Americans are struggling even as inflation cools

    “The cumulative progress on inflation — evidenced by the CPI now at 2.5% after having peaked at 9% in mid-2022 — has given the Federal Reserve the green light to begin cutting interest rates at next week’s meeting,” said Greg McBride, chief financial analyst at Bankrate.com, referring to the consumer price index, a broad measure of goods and services costs across the U.S. economy.

    However, the impact from the first rate cut, expected to be a quarter percentage point, “is very minimal,” McBride said.

    “What borrowers can be optimistic about is that we will see a series of rate cuts that cumulatively will have a meaningful impact on borrowing costs, but it will take time,” he said. “One rate cut is not going to be a panacea.”

    Markets are pricing in a 100% probability that the Fed will start lowering rates when it meets Sept. 17-18, with the potential for more aggressive moves later in the year, according to the CME Group’s FedWatch measure.

    That could bring the Fed’s benchmark federal funds rate from its current range, 5.25% to 5.50%, to below 4% by the end of 2025, according to some experts.

    The federal funds rate, which the U.S. central bank sets, is the rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates they see every day.

    Rates for everything from credit cards to car loans to mortgages will be affected once the Fed starts trimming its benchmark. Here’s a breakdown of what to expect:

    Credit cards

    Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. In the wake of the rate hike cycle, the average credit card rate rose from 16.34% in March 2022 to more than 20% today — near an all-time high.

    For those paying 20% interest — or more — on a revolving balance, annual percentage rates will start to come down when the Fed cuts rates. But even then they will only ease off extremely high levels, according to McBride.

    “The Fed has to do a lot of rate cutting just to get to 19%, and that’s still significantly higher than where we were just three years ago,” McBride said.

    The best move for those with credit card debt is to switch to a 0% balance transfer credit card and aggressively pay down the balance, he said. “Rates won’t fall fast enough to bail you out.”

    Mortgage rates

    While 15- and 30-year mortgage rates are fixed and mostly tied to Treasury yields and the economy, they are partly influenced by the Fed’s policy. Home loan rates have already started to fall, largely due to the prospect of a Fed-induced economic slowdown.

    As of Sept. 11, the average rate for a 30-year, fixed-rate mortgage was around 6.3%, nearly a full percentage point drop from where rates stood in May, according to the Mortgage Bankers Association.

    But even though mortgage rates are falling, home prices remain at or near record highs in many areas, according to Jacob Channel, senior economist at LendingTree.

    “This cut isn’t going to totally reshape the economy, and it’s not going to make doing things like buying a house or paying off debt orders of magnitude easier,” he said.

    Auto loans

    “Auto loan rates will head lower, too, but you shouldn’t expect the blocking and tackling around car shopping to change anytime soon,” said Matt Schulz, chief credit analyst at LendingTree. 

    The average rate on a five-year new car loan is now around 7.7%, according to Bankrate.

    While anyone planning to finance a new car could benefit from lower rates to come, the Fed’s next move will not have any material effect on what you get, said Bankrate’s McBride. “Nobody is upgrading from a compact to an SUV on a quarter-point rate cut.” The quarter percentage point difference on a $35,000 loan is about $4 a month, he said.

    Consumers would benefit more from improving their credit scores, which could pave the way to even better loan terms, McBride said.

    Student loans

    Federal student loan rates are also fixed, so most borrowers won’t be immediately affected by a rate cut. However, if you have a private loan, those loans may be fixed or have a variable rate tied to the T-bill or other rates, which means once the Fed starts cutting interest rates, the rates on those private student loans will come down as well.

    Eventually, borrowers with existing variable-rate private student loans may also be able to refinance into a less expensive fixed-rate loan, according to higher education expert Mark Kantrowitz. 

    However, refinancing a federal loan into a private student loan will forgo the safety nets that come with federal loans, he said, “such as deferments, forbearances, income-driven repayment and loan forgiveness and discharge options.” Additionally, extending the term of the loan means you ultimately will pay more interest on the balance.

    Savings rates

    While the central bank has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate.

    As a result of the Fed’s string of rate hikes in recent years, top-yielding online savings account rates have made significant moves and are now paying well over 5%, with no minimum deposit, according to Bankrate’s McBride.

    With rate cuts on the horizon, those “deposit rates will come down,” he said. “But the important thing is, what is your return relative to inflation — and that is the good news. You are still earning a return that’s ahead of inflation, as long as you have your money in the right place.”

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  • 5 top money moves to consider before the Federal Reserve’s first rate cut since 2020

    5 top money moves to consider before the Federal Reserve’s first rate cut since 2020

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    Last week, Federal Reserve Chair Jerome Powell all but confirmed that an interest rate cut is coming soon.

    “The time has come for policy to adjust,” the central bank leader said in his keynote address at the Fed’s annual retreat in Jackson Hole, Wyoming.

    For Americans struggling to keep up with sky-high interest charges, a likely quarter-point cut in September may bring some welcome relief — especially with the right preparation. (A more aggressive half-point move has a roughly a 1-in-3 chance of happening, according to the CME’s FedWatch measure of futures market pricing.)

    “If you are a consumer, now is the time to say: ‘What does my spending look like? Where would my money grow the most and what options do I have?’” said Leslie Tayne, an attorney specializing in debt relief at Tayne Law in New York and author of “Life & Debt.”

    More from Personal Finance:
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    More Americans are struggling even as inflation cools
    Some colleges is now cost nearly $100,000 a year

    Currently, the federal funds rate is at the highest level in two decades, in a range of 5.25% to 5.50%.

    If the Fed cuts rates in September, as expected, it would mark the first time officials lowered its benchmark in more than four years, when they slashed them to near zero at the beginning of the Covid-19 pandemic.

    “From a consumer perspective, it’s important to note that lower interest rates will be a gradual process,” said Ted Rossman, senior industry analyst at Bankrate.com. “The trip down is likely to be much slower than the series of interest rate hikes which quickly pushed the federal funds rate higher by 5.25 percentage points in 2022 and 2023.”

    Here are five ways to prepare for this policy shift:

    1. Strategize paying down credit card debt

    People shop at a store in Brooklyn on August 14, 2024 in New York City. 

    Spencer Platt | Getty Images

    With a rate cut, the prime rate lowers, too, and the interest rates on variable-rate debt — most notably credit cards — are likely to follow, reducing your monthly payments. But even then, APRs will only ease off extremely high levels.

    For example, the average interest rate on a new credit card today is nearly 25%, according to LendingTree data. At that rate, if you pay $250 per month on a card with a $5,000 balance, it will cost you more than $1,500 in interest and take 27 months to pay off.

    If the central bank cuts rates by a quarter point, you’ll save $21 altogether and be able to pay off the balance one month faster. “That’s not nothing, but it is far less than what you could save with a 0% balance transfer credit card,” said Matt Schulz, chief credit analyst at LendingTree.

    Rather than wait for a small adjustment in the months ahead, borrowers could switch now to a zero-interest balance transfer credit card or consolidate and pay off high-interest credit cards with a lower-rate personal loan, Tayne said.

    2. Lock in a high-yield savings rate

    Since rates on online savings accounts, money market accounts and certificates of deposit are all poised to go down, experts say this is the time to lock in some of the highest returns in decades.

    For now, top-yielding online savings accounts are paying more than 5% — well above the rate of inflation.

    Although those rates will fall once the central bank lowers its benchmark, a typical saver with about $8,000 in a checking or savings account could earn an additional $200 a year by moving that money into a high-yield account that earns an interest rate of 2.5% or more, according to a recent survey by Santander Bank in June. The majority of Americans keep their savings in traditional accounts, Santander found, which FDIC data shows are currently paying 0.46%, on average.

    Alternatively, “now is a great time to lock in the most competitive CD yields at a level that is well ahead of targeted inflation,” said Greg McBride, Bankrate’s chief financial analyst. “There is no sense in holding out for better returns later.”

    Currently, a top-yielding one-year CD pays more than 5.3%, according to Bankrate, as good as a high-yield savings account.

    3. Consider the right time to finance a big purchase

    If you’re planning a major purchase, like a home or car, then it may pay to wait, since lower interest rates could reduce the cost of financing down the road.

    “Timing your purchase to coincide with lower rates can save money over the life of the loan,” Tayne said.

    Although mortgage rates are fixed and tied to Treasury yields and the economy, they’ve already started to come down from recent highs, largely due to the prospect of a Fed-induced economic slowdown. The average rate for a 30-year, fixed-rate mortgage is now just under 6.5%, according to Freddie Mac.

    Compared with a recent high of 7.22% in May, today’s lower rate on a $350,000 loan would result in a savings of $171 a month, or $2,052 a year and $61,560 over the lifetime of the loan, according to calculations by Jacob Channel, senior economic analyst at LendingTree.

    However, going forward, lower mortgage rates could also boost homebuying demand, which would push prices higher, McBride said. “If lower mortgage rates lead to a surge in prices, that’s going to offset the affordability benefit for would-be buyers.”

    What exactly will happen in the housing market “is up in the air” depending on how much mortgage rates decline in the latter half of the year and the level of supply, according to Channel.

    “Timing the market is virtually impossible,” he said. 

    4. Assess the right time to refinance

    For those struggling with existing debt, there may be more options for refinancing once rates drop.

    Private student loans, for example, tend to have a variable rate tied to the prime, Treasury bill or another rate index, which means once the Fed starts cutting interest rates, the rates on those private student loans will come down as well.

    Eventually, borrowers with existing variable-rate private student loans may also be able to refinance into a less-expensive fixed-rate loan, according to higher education expert Mark Kantrowitz. 

    Currently, the fixed rates on a private refinance are as low as 5% and as high as 11%, he said.

    However, refinancing a federal loan into a private student loan will forgo the safety nets that come with federal loans, he added, “such as deferments, forbearances, income-driven repayment and loan forgiveness and discharge options.” Additionally, extending the term of the loan means you ultimately will pay more interest on the balance.

    Be mindful of potential loan-term extensions, cautioned David Peters, founder of Peters Professional Education in Richmond, Virginia. “Consider maintaining your original payment after refinancing to shave as much principal off as possible without changing your out-of-pocket cash flow,” he said.

    Similar considerations may also apply for home and auto loan refinancing opportunities, depending in part on your existing rate.

    5. Perfect your credit score

    Those with better credit could already qualify for a lower interest rate.

    When it comes to auto loans, for instance, there’s no question inflation has hit financing costs — and vehicle prices — hard. The average rate on a five-year new car loan is now nearly 8%, according to Bankrate.

    But in this case, “the financing is one variable, and it’s frankly one of the smaller variables,” McBride said. For example, a reduction of a quarter percentage point in rates on a $35,000, five-year loan is $4 a month, he calculated.

    Here, and in many other situations, as well, consumers would benefit more from paying down revolving debt and improving their credit scores, which could pave the way to even better loan terms, McBride said.

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  • How to position yourself to benefit from the Fed’s first rate cut in years, according to financial experts

    How to position yourself to benefit from the Fed’s first rate cut in years, according to financial experts

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    The Federal Reserve could start lowering interest rates as soon as next month, based on the latest inflation data.

    “We think that the time is approaching,” Fed Chair Jerome Powell said at a press conference after the last Federal Open Market Committee meeting in July.

    For Americans struggling to keep up with sky-high interest charges, a likely September rate cut may bring some welcome relief — even more so with the right planning.

    “If you are a consumer, now is the time to say: ‘What does my spending look like? Where would my money grow the most and what options do I have?’” said Leslie Tayne, an attorney specializing in debt relief at Tayne Law in New York and author of “Life & Debt.”

    More from Personal Finance:
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    More Americans are struggling even as inflation cools

    Fed officials signaled they expect to reduce the benchmark rate once in 2024 and four times in 2025.

    That could bring the benchmark fed funds rate from the current range of 5.25% to 5.50% to below 4% by the end of next year, according to some experts.

    The federal funds rate is the one at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the rates they see every day on things such as private student loans and credit cards.

    Here are five ways to position your finances for the months ahead:

    1. Lock in a high-yield savings rate

    Since rates on online savings accounts, money market accounts and certificates of deposit are all poised to go down, experts say this is the time to lock in some of the highest returns in decades.

    For now, top-yielding online savings accounts are paying more than 5% — well above the rate of inflation.

    Although those rates will fall once the central bank lowers its benchmark, a typical saver with about $8,000 in a checking or savings account could earn an additional $200 a year by moving that money into a high-yield account that earns an interest rate of 2.5% or more, according to a recent survey by Santander Bank in June. The majority of Americans keep their savings in traditional accounts, Santander found, which FDIC data shows are currently paying 0.45%, on average.

    Alternatively, “now is a great time to lock in the most competitive CD yields at a level that is well ahead of targeted inflation,” said Greg McBride, chief financial analyst at Bankrate.com. “There is no sense in holding out for better returns later.”

    Currently, a top-yielding one-year CD pays more than 5.3%, according to Bankrate, as good as a high-yield savings account.

    2. Pay down credit card debt

    With a rate cut, the prime rate lowers, too, and the interest rates on variable-rate debt — most notably credit cards — are likely to follow, reducing your monthly payments. But even then, APRs will only ease off extremely high levels.

    For example, the average interest rate on a new credit card today is nearly 25%, according to LendingTree data. At that rate, if you pay $250 per month on a card with a $5,000 balance, it will cost you more than $1,500 in interest and take 27 months to pay off.

    If the central bank cuts rates by a quarter point, you’ll save $21 and be able to pay off the balance one month faster. “That’s not nothing, but it is far less than what you could save with a 0% balance transfer credit card,” said Matt Schulz, chief credit analyst at LendingTree.

    Rather than wait for a small adjustment in the months ahead, borrowers could switch now to a zero-interest balance transfer credit card or consolidate and pay off high-interest credit cards with a personal loan, Tayne said.

    3. Consider the right time to finance a big purchase

    If you’re planning a major purchase, like a home or car, then it may pay to wait, since lower interest rates could reduce the cost of financing down the road.

    “Timing your purchase to coincide with lower rates can save money over the life of the loan,” Tayne said.

    Although mortgage rates are fixed and tied to Treasury yields and the economy, they’ve already started to come down from recent highs, largely due to the prospect of a Fed-induced economic slowdown. The average rate for a 30-year, fixed-rate mortgage is now around 6.5%, according to Freddie Mac.

    Compared to a recent high of 7.22% in May, today’s lower rate on a $350,000 loan would result in a savings of $171 a month, or $2,052 a year and $61,560 over the lifetime of the loan, according to calculations by Jacob Channel, senior economic analyst at LendingTree.

    However, going forward, lower mortgage rates could also boost homebuying demand, which would push prices higher, McBride said. “If lower mortgage rates lead to a surge in prices, that’s going to offset the affordability benefit for would-be buyers.”

    What exactly will happen in the housing market “is up in the air” depending on how much mortgage rates decline in the latter half of the year and the level of supply, according to Channel.

    “Timing the market is virtually impossible,” he said. 

    4. Consider the right time to refinance

    For those struggling with existing debt, there may be more options for refinancing once rates drop.

    Private student loans, for example, tend to have a variable rate tied to the prime, Treasury bill or another rate index, which means once the Fed starts cutting interest rates, the rates on those private student loans will come down as well.

    Eventually, borrowers with existing variable-rate private student loans may also be able to refinance into a less expensive fixed-rate loan, according to higher education expert Mark Kantrowitz. 

    Currently, the fixed rates on a private refinance are as low as 5% and as high as 11%, he said.

    However, refinancing a federal loan into a private student loan will forgo the safety nets that come with federal loans, he added, “such as deferments, forbearances, income-driven repayment and loan forgiveness and discharge options.” Additionally, extending the term of the loan means you ultimately will pay more interest on the balance.

    Be mindful of potential loan -term extensions, cautioned David Peters, founder of Peters Professional Education in Richmond, Virginia. “Consider maintaining your original payment after refinancing to shave as much principal off as possible without changing your out-of-pocket cash flow,” he said.

    Similar considerations may also apply for home and auto loan refinancing opportunities, depending in part on your existing rate.

    5. Perfect your credit score

    Those with better credit could already qualify for a lower interest rate.

    When it comes to auto loans, for instance, there’s no question inflation has hit financing costs — and vehicle prices — hard. The average rate on a five-year new car loan is now nearly 8%, according to Bankrate.

    But in this case, “the financing is one variable, and it’s frankly one of the smaller variables,” McBride said. For example, a reduction of a quarter percentage point in rates on a $35,000, five-year loan is $4 a month, he calculated.

    Here, and in many other situations, as well, consumers would benefit more from paying down revolving debt and improving their credit scores, which could pave the way to even better loan terms, McBride said.

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  • The Federal Reserve sets the stage for a rate cut — here’s what that means for your money

    The Federal Reserve sets the stage for a rate cut — here’s what that means for your money

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    Customer shopping for school supplies with employee restocking shelves, Target store, Queens, New York.

    Lindsey Nicholson | UCG | Universal Images Group | Getty Images

    Now, as the central bank sets the stage to lower interest rates for the first time in years when it meets again in September, consumers may see their borrowing costs start come down as well — some are already.

    The federal funds rate, which the U.S. central bank sets, is the rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates they see every day.

    “The first cut will not make a meaningful difference to people’s pocketbooks but it will be the beginning of a series of rate cuts at the end the of this year and into next year that will,” House said.

    That could bring the the Fed’s benchmark fed funds rate from the current range of 5.25% to 5.50% to below 4% by the end of next year, according to some experts.

    From credit cards and mortgage rates to auto loans and student debt, here’s a look at where those monthly interest expenses stand as we move closer to that initial interest rate cut.

    Credit cards

    Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. In the wake of the rate hike cycle, the average credit card rate rose from 16.34% in March 2022 to more than 20% today — nearing an all-time high.

    At the same time, with households struggling to keep up with the high cost of living, credit card balances are also higher and more cardholders are carrying debt from month to month or falling behind on payments.

    A recent report from the Philadelphia Federal Reserve showed credit card delinquencies at an all-time high, according to data going back to 2012. Revolving debt balances also reached a new high even as banks reported tightening credit standards and declining new card originations.

    For those paying 20% interest — or more — on a revolving balance, annual percentage rates will start to come down when the Fed cuts rates. But even then they will only ease off extremely high levels, offering little in the way of relief, according to Greg McBride, chief financial analyst at Bankrate.com.

    “Rates are not going to fall fast enough to bail you out of a bad situation,” McBride said.

    The best move for those with credit card debt is to take matters into their own hands, advised Matt Schulz, chief credit analyst at LendingTree.

    “They can do that by getting a 0% balance transfer credit card or a low-interest personal loan or by calling their card issuer and requesting a lower interest rate on a card,” he said. “That works more often that you might think.”

    Mortgage rates

    While 15- and 30-year mortgage rates are fixed and mostly tied to Treasury yields and the economy, they are partly influenced by the Fed’s policy. Home loan rates have already started to fall, largely due to the prospect of a Fed-induced economic slowdown.

    The average rate for a 30-year, fixed-rate mortgage is now just below 7%, according to Bankrate.

    “If we continue to get good news on things like inflation, [mortgage rates] could continue trending downward,” said Jacob Channel, senior economist at LendingTree. “We shouldn’t expect any gargantuan drops in the immediate future, but we might see rates trending back to their 2024 lows over the coming weeks and months,” he said.

    “If all goes really well, we could even end the year with the average rate on a 30-year, fixed mortgage closer to 6% than 6.5% or 7%.”

    At first glance, that might not seem significant, Channel added, but “in mortgage land,” a nearly 50 basis-point drop “is nothing to scoff at.”

    Auto loans

    Auto loans are fixed. However, payments have been getting bigger because the interest rates on new loans are higher, along with rising car prices, resulting in less affordable monthly payments.

    The average rate on a five-year new car loan is now just shy of 8%, according to Bankrate.

    However, here, “the financing is one variable, and it’s frankly one of the smaller variables,” McBride said. For example, a quarter percentage point reduction in rates on a $35,000, five-year loan is $4 a month, he calculated.

    Consumers would benefit more from improving their credit scores, which could pave the way to even better loan terms, McBride said.

    Student loans

    Federal student loan rates are also fixed, so most borrowers aren’t immediately affected by the Fed’s moves. But undergraduate students who took out direct federal student loans for the 2023-24 academic year are paying 5.50%, up from 4.99% in 2022-23 — and the interest rate on federal direct undergraduate loans for the 2024-2025 academic year is 6.53%, the highest rate in at least a decade.

    Private student loans tend to have a variable rate tied to the prime, Treasury bill or another rate index, which means those borrowers are already paying more in interest. How much more, however, varies with the benchmark.

    Savings rates

    While the central bank has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate.

    As a result, top-yielding online savings account rates have made significant moves and are now paying as much as 5.5% — well above the rate of inflation, which is a rare win for anyone building up a cash cushion, according to Bankrate’s McBride.

    But those rates will fall once the Fed lowers its benchmark, he added. “If you’ve been considering a certificate of deposit, now is the time to lock it in,” McBride said. “Those yields will not get better, so there is no advantage to waiting.”

    Currently, a top-yielding one-year CD pays more than 5.3%, as good as a high-yield savings account.

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  • 3 money moves to make ahead of the Federal Reserve’s first rate cut in years

    3 money moves to make ahead of the Federal Reserve’s first rate cut in years

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    Recent signs that inflation is easing have paved the way for the Federal Reserve to start lowering interest rates as soon as this fall.

    The consumer price index, a key inflation gauge, dipped in June for the first time in more than four years, the Labor Department reported last week.

    “With abundant signs of a cooling economy, the consumer price index for June certainly constitutes the ‘more good data’ on inflation that Fed Chair Jerome Powell has said we need to see before the Fed can begin cutting interest rates,” said Greg McBride, chief financial analyst at Bankrate.com.

    With a fall rate cut looking more likely now, households may finally get some relief from the sky-high borrowing costs that followed the most recent series of interest rate hikes, which took the Fed’s benchmark rate to the highest level in decades.

    More from Personal Finance:
    High inflation is largely not Biden’s or Trump’s fault, economists say
    Why housing inflation is still stubbornly high
    More Americans are struggling even as inflation cools

    Fed officials signaled they expect to reduce its benchmark rate once in 2024 and four additional times in 2025.

    The federal funds rate, which is set by the U.S. central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the rates they see every day on things such as private student loans and credit cards.

    “If you are a consumer, now is the time to say, what does my spending look like? Where would my money grow the most and what options do I have?” said Leslie Tayne, an attorney specializing in debt relief at Tayne Law in New York and author of “Life & Debt.”

    Here are three key strategies to consider:

    1. Watch your variable-rate debt

    With a rate cut, the prime rate lowers, too, and the interest rates on variable-rate debt — such as credit cards, adjustable-rate mortgages and some private student loans — are likely to follow, reducing your monthly payments.

    For example, credit card holders could see a reduction in their annual percentage yield, or APR, within a billing cycle or two. But even then, APRs will only ease off extremely high levels.

    Rather than wait for a small adjustment in the months ahead, borrowers could switch now to a zero-interest balance transfer credit card or consolidate and pay off high-interest credit cards with a personal loan, Tayne said.

    Olga Rolenko | Moment | Getty Images

    Many homeowners with ARMs, which are pegged to a variety of indexes such as the prime rate, Libor or the 11th District Cost of Funds, may see their interest rate go down as well — although not immediately as ARMs generally reset just once a year.

    In the meantime, there are fewer options to provide homeowners with extra breathing room. “Your better move may be waiting to refinance,” McBride said.

    Private student loans also tend to have a variable rate tied to the prime, Treasury bill or another rate index, which means once the Fed starts cutting interest rates, the interest rates on those private student loans will start dropping.

    Eventually, borrowers with existing variable-rate private student loans may also be able to refinance into a less expensive fixed-rate loan, according to higher education expert Mark Kantrowitz. 

    Currently, the fixed rates on a private refinance are as low as 5% and as high as 11%, Kantrowitz said.

    2. Lock in savings rates

    While borrowing will become less expensive, those lower interest rates will hurt savers. 

    Since rates on online savings accounts, money market accounts and certificates of deposit are all poised to go down, experts say this is the time to lock in some of the highest returns in decades.

    For now, top-yielding online savings accounts and one-year CDs are paying more than 5% — well above the rate of inflation.

    The opportunity to earn 5% annually on those cash investments may not last much longer.

    Howard Hook

    wealth advisor with EKS Associates

    “One thing you may want to do is consider investing any idle cash you have into a higher-yielding money market fund,” said certified financial planner Howard Hook, a senior wealth advisor at EKS Associates in Princeton, New Jersey.

    “Money market brokerage accounts usually pay higher rates than money market or savings accounts at banks,” he said in an emailed statement. “If the Fed is indeed looking to reduce rates five times over the next eighteen months (as currently projected), then the opportunity to earn 5% annually on those cash investments may not last much longer.”

    3. Put off large purchases

    If you’re planning a major purchase, like a home or car, then it may pay to wait, since lower interest rates could reduce the cost of financing down the road.

    “Timing your purchase to coincide with lower rates can save money over the life of the loan,” Tayne said.

    Although mortgage rates are fixed and tied to Treasury yields and the economy, they’ve already started to come down from recent highs, largely due to the prospect of a Fed-induced economic slowdown. The average rate for a 30-year, fixed-rate mortgage is now just above 7%, according to Bankrate.

    However, lower mortgage rates could also boost homebuying demand, which would push prices higher, McBride said. “If lower mortgage rates lead to a surge in prices, that’s going to offset the affordability benefit for would-be buyers.”

    When it comes to auto loans, there’s no question inflation has hit financing costs — and vehicle prices — hard. The average rate on a five-year new car loan is now nearly 8%, according to Bankrate.

    But in this case, “the financing is one variable, and it’s frankly one of the smaller variables,” McBride said. For example, a quarter percentage point reduction in rates on a $35,000, five-year loan is $4 a month, he calculated.

    In this case, and in many other situations as well, consumers would benefit more from improving their credit scores, which could pave the way to even better loan terms, McBride said.

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  • Is it a good time to buy a new car? – MoneySense

    Is it a good time to buy a new car? – MoneySense

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    Sticker prices at dealerships have started to come down and affordability is improving, said Daniel Ross, senior manager of industry insights with Canadian Black Book.

    “The new car market is normalizing faster than the used car market,” he said. “You have the inventory, you have the incentives depending on where you’re shopping and if you were a new car shopper from the beginning, it’s the best situation you’ve had in a long time.”

    Inventory of new cars has built up across the country as prices for newer models climbed and consumers pulled back on big purchases amid high inflation and rising interest rates. Now, manufacturers and dealerships have launched incentives and rebates as they look to clear that supply.

    On new cars, dealerships can offer internal financing from manufacturers and control the rates independently from bank rates, said Sam Fiorani, vice-president of global vehicle forecasting at AutoForecast Solutions.

    “Instead of offering rebates, they lower interest rates which make deals better for the consumer.”

    How availability impacts car loan interest rates

    Homeowners are watching the Bank of Canada’s every move as they hope for lower borrowing rates, but a vehicle purchase works somewhat differently, said Shari Prymak, a senior consultant at non-profit Car Help Canada. When financing through a dealership, the interest rate depends on the given make or model.

    “The rates that the manufacturer sets are mainly tied to the vehicle availability,” he said.

    “If the vehicles have a very good supply, they’ll incentivize the interest rates and bring down the rates,” Prymak said. “But if the vehicle doesn’t have any supply, if it has a long waiting period, because it’s in short supply, the rates won’t be incentivized.”

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  • The Federal Reserve holds interest rates steady — here’s what that means for your money

    The Federal Reserve holds interest rates steady — here’s what that means for your money

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    The Federal Reserve announced Wednesday that it will leave interest rates unchanged. Fresh inflation data issued earlier in the day showed that consumer prices are gradually moderating though remain above the central bank’s target.

    The Fed’s benchmark fed funds rate has now stood within the range of 5.25% to 5.50% since last July.

    The central bank projected it would cut interest rates once in 2024, down from an estimate of three in March.

    For consumers already strained by the high cost of living, there is an added toll from persistently high borrowing costs.

    “It’s not enough that the rate of inflation has come down,” said Greg McBride, chief financial analyst at Bankrate.com. “Prices haven’t, and that is what is really stressing household balances.”

    More from Personal Finance:
    Average 401(k) savings rates recently hit a record
    Here’s what’s wrong with TikTok’s viral money hacks
    What to do if you think you’re underpaid

    Inflation has been a persistent problem since the Covid-19 pandemic when price increases soared to their highest levels since the early 1980s. The Fed responded with a series of interest rate hikes that took its benchmark rate to the highest level in decades.

    The federal funds rate, which is set by the U.S. central bank, is the rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates they see every day.

    The spike in interest rates caused most consumer borrowing costs to skyrocket, and now, more Americans are falling behind on their payments.

    From credit cards and mortgage rates to auto loans and student debt, here’s a look at where those monthly interest expenses stand.

    Credit cards

    Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. In the wake of the rate hike cycle, the average credit card rate rose from 16.34% in March 2022 to nearly 21% today — nearing an all-time high.

    “Consumers need to understand that the cavalry isn’t coming anytime soon, so the best thing you can do is take things into your own hands when it comes to lowering credit card interest rates,” said Matt Schulz, chief credit analyst at LendingTree.

    Try calling your card issuer to ask for a lower rate, consolidating and paying off high-interest credit cards with a lower-interest personal loan or switching to an interest-free balance transfer credit card, Schulz advised.

    Mortgage rates

    Although 15- and 30-year mortgage rates are fixed and tied to Treasury yields and the economy, anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.

    The average rate for a 30-year, fixed-rate mortgage is just above 7%, up from 4.4% when the Fed started raising rates in March 2022 and 3.27% at the end of 2021, according to Bankrate.

    “Going forward, mortgage rates will likely continue to fluctuate and it’s impossible to say for certain where they’ll end up,” noted Jacob Channel, senior economist at LendingTree. “That said, there’s a good chance that we’re going to need to get used to rates above 7% again, at least until we start getting better economic news.”

    Auto loans

    Even though auto loans are fixed, payments are getting bigger because car prices have been rising along with the interest rates on new loans, resulting in less affordable monthly payments. 

    The average rate on a five-year new car loan is now more than 7%, up from 4% in March 2022, and that’s not likely to change, according to Ivan Drury, Edmunds’ director of insights.

    “Until we hit summer selldown months in the latter half of the third quarter, we should expect rates to remain relatively static during the foreseeable future,” Drury said.

    However, competition between lenders and more incentives in the market lately have started to take some of the edge off the cost of buying a car, he added.

    Student loans

    Federal student loan rates are also fixed, so most borrowers aren’t immediately affected by the Fed’s moves. But undergraduate students who took out direct federal student loans for the 2023-24 academic year are paying 5.50%, up from 4.99% in 2022-23 — and the interest rate on federal direct undergraduate loans for the 2024-2025 academic year will be 6.53%, the highest rate in at least a decade.

    Private student loans tend to have a variable rate tied to the prime, Treasury bill or another rate index, which means those borrowers are already paying more in interest. How much more, however, varies with the benchmark.

    Savings rates

    While the central bank has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate.

    As a result, top-yielding online savings account rates have made significant moves and are now paying more than 5% — above the rate of inflation, which is a rare win for anyone building up a cash cushion, according to Bankrate’s McBride.

    “Savers are sitting back and enjoying the best environment they’ve seen in more than 15 years,” McBride said.

    Currently, top-yielding one-year certificates of deposit pay over 5.3%, as good as a high-yield savings account.

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  • Why young people keep getting caught in debt traps and how to break the cycle – MoneySense

    Why young people keep getting caught in debt traps and how to break the cycle – MoneySense

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    “They may see a slight increase in their income, and they think, ‘Oh, I just kind of hit the lottery, and now I’m going to spend like crazy,’” Schwartz said. “And it’s tough to change those behaviours after it’s been ingrained for a long period of time.”

    To prevent this from happening, track spending diligently—you can download apps for this purpose—and delay milestones such as moving out or getting a car if you can, Schwartz said. Build up an emergency fund in case you lose your income or suffer a financial setback, to avoid falling into serious debt.

    “If you have the opportunity when you’re young, when you’re not spending as much on rent, you’re not spending as much on food, if you can cut back on how much you’re socializing—that’s a great place to start to build up that reserve fund,” Schwartz said.

    Live within your monthly cash flow—using your debit card or cash—and develop a short-term austerity plan to make big strides on debt repayment, Terrio said.

    When to focus on debt repayment

    Summer months are tough for austerity because you want to socialize, he pointed out, but January through March are a good time to adhere to a severe budget. Up to 40% of your non-rent income should go to debt, Terrio said, noting short-term austerity is tolerable because it’s over quickly.

    Ultimately, the aim is to reach the tipping point when at least half of your debt payment is going to the principal—and the portion going to interest starts to slide. Never use an instalment loan, he added.

    “All these 36 to 48% interest loans that are $10,000—if you get one of those, you’re done,” Terrio said. “You’re never, ever getting out.”

    Once you’re free of debt, stay that way. Keep your credit limit low and turn down offers to increase it, Terrio said. If you move debt to a line of credit, stop using your credit card.

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  • The Federal Reserve holds interest rates steady, offers no relief from high borrowing costs — what that means for your money

    The Federal Reserve holds interest rates steady, offers no relief from high borrowing costs — what that means for your money

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    The Federal Reserve announced Wednesday it will leave interest rates unchanged as inflation continues to prove stickier than expected.

    However, the move also dashes hopes that the Fed will be able to start cutting rates soon and relieve consumers from sky-high borrowing costs.

    The market is now pricing in one rate cut later in the year, according to the CME’s FedWatch measure of futures market pricing. It started 2024 expecting at least six reductions, which was “completely fantasy land,” said Greg McBride, chief financial analyst at Bankrate.com.

    That change in rate-cut expectations leaves many households in a bind, he said. “Certainly from a budgetary standpoint, not only is inflation still high but that is on top of the cumulative increase in prices over the last three years.”

    “Prioritizing debt repayment, especially of high-cost credit card debt, remains paramount as interest rates promise to remain high for some time,” McBride said.

    More from Personal Finance:
    Cash savers still have an opportunity to beat inflation
    Here’s what’s wrong with TikTok’s viral savings challenges
    The strong U.S. job market is in a ‘sweet spot,’ economists say

    Inflation has been a persistent problem since the Covid-19 pandemic, when price increases soared to their highest levels since the early 1980s. The Fed responded with a series of interest rate hikes that took its benchmark rate to its highest level in more than 22 years.

    The federal funds rate, which is set by the U.S. central bank, is the rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates they see every day.

    The spike in interest rates caused most consumer borrowing costs to skyrocket, putting many households under pressure.

    Increasing inflation has also been bad news for wage growth, as real average hourly earnings rose just 0.6% over the past year, according to the Labor Department’s Bureau of Labor Statistics.

    Even with possible rate cuts on the horizon, consumers won’t see their borrowing costs come down significantly, according to Columbia Business School economics professor Brett House.

    “Once the Fed does cut rates, that could cascade through reductions in other rates but there is nothing that necessarily guarantees that,” he said.

    From credit cards and mortgage rates to auto loans and savings accounts, here’s a look at where those rates could go in the second half of 2024.

    Credit cards

    Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. In the wake of the rate hike cycle, the average credit card rate rose from 16.34% in March 2022 to nearly 21% today — an all-time high.

    Annual percentage rates will start to come down when the central bank reduces rates, but even then they will only ease off extremely high levels. With only a few potential quarter-point cuts on deck, APRs aren’t likely to fall much, according to Matt Schulz, chief credit analyst at LendingTree.

    “If Americans want lower interest rates, they’re going to have to do it themselves,” he said. Try calling your card issuer to ask for a lower rate, consolidating and paying off high-interest credit cards with a lower-interest personal loan or switching to an interest-free balance transfer credit card, Schulz advised.

    Mortgage rates

    Although 15- and 30-year mortgage rates are fixed, and tied to Treasury yields and the economy, anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.

    The average rate for a 30-year, fixed-rate mortgage is just above 7.3%, up from 4.4% when the Fed started raising rates in March 2022 and 3.27% at the end of 2021, according to Bankrate.

    “Going forward, mortgage rates will likely continue to fluctuate and it’s impossible to say for certain where they’ll end up,” noted Jacob Channel, senior economist at LendingTree. “That said, there’s a good chance that we’re going to need to get used to rates above 7% again, at least until we start getting better economic news.”

    Auto loans

    Even though auto loans are fixed, payments are getting bigger because car prices have been rising along with the interest rates on new loans, resulting in less affordable monthly payments. 

    The average rate on a five-year new car loan is now more than 7%, up from 4% in March 2022, according to Edmunds. However, competition between lenders and more incentives in the market lately have started to take some of the edge off the cost of buying a car, said Ivan Drury, Edmunds’ director of insights.

    “Any reduction in rates will be especially welcome as there is an increasingly higher share of consumers with older trade-ins that have sat out the market madness waiting for an automotive landscape that looks more like the last time they bought a vehicle six or seven years ago,” Drury said.

    Student loans

    Federal student loan rates are also fixed, so most borrowers aren’t immediately affected. But undergraduate students who took out direct federal student loans for the 2023-24 academic year are now paying 5.50%, up from 4.99% in 2022-23 — and any loans disbursed after July 1 will likely be even higher. Interest rates for the upcoming school year will be based on an auction of 10-Year Treasury notes later this month.

    Private student loans tend to have a variable rate tied to the prime, Treasury bill or another rate index, which means those borrowers are already paying more in interest. How much more, however, varies with the benchmark.

    For those struggling with existing debt, there are ways federal borrowers can reduce their burden, including income-based plans with $0 monthly payments and economic hardship and unemployment deferments. 

    Private loan borrowers have fewer options for relief — although some could consider refinancing once rates start to come down, and those with better credit may already qualify for a lower rate.

    Savings rates

    While the central bank has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate.

    As a result, top-yielding online savings account rates have made significant moves and are now paying more than 5.5% — above the rate of inflation, which is a rare win for anyone building up a cash cushion, McBride said.

    “The mantra of higher-for-longer interest rates is music to the ears of savers who will continue to enjoy inflation-beating returns on safe-haven savings accounts, money markets and CDs for the foreseeable future,” he said.

    Currently, top-yielding certificates of deposit pay over 5.5%, as good as or better than a high-yield savings account.

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  • ‘Blows my mind’: North Carolina woman made $50K in car payments — and barely reduced the $84K loan. How to avoid this

    ‘Blows my mind’: North Carolina woman made $50K in car payments — and barely reduced the $84K loan. How to avoid this

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    ‘Blows my mind’: North Carolina woman made $50K in car payments — and barely reduced the $84K loan. How to avoid this

    The sticker prices on automobiles are higher than ever, but the monthly payments for leases and financing — with all the interest and fees rolled in — are truly where the staggeringly high figures can be found.

    Blaisey Arnold knows this firsthand, three years into owning her Chevy Tahoe. The mom of three says in her viral TikTok video that she financed the vehicle at $84,000 and paid $1,400 every month for the past three years, which comes to around $50,000.

    Yet the North Carolina mom says she still owes at least $74,000 on the car loan.

    Don’t miss

    “Honestly, that blows my mind,” she says to the camera. Her audience clearly feels the same way: “You need to learn about interest rate,” one commenter said.

    Leaving aside the specifics of her situation — which seems to be particularly extreme — auto loans can be crippling to a household’s budget, even if you’re not splurging on a top-of-the-line SUV.

    Interest rates are climbing

    Arnold doesn’t disclose the interest or annual percentage rate (APR) that’s attached to her Tahoe loan.

    APR is a measure of the total yearly cost of a loan, including the interest rate and all additional fees. It’s determined according to a host of factors, such as the key interest rates set by the Federal Reserve, retailers’ own borrowing terms and, importantly, your credit score (a higher credit score will yield a lower APR, and vice versa).

    In another video, Arnold says that her husband pays 14% APR on his 2020 GMC AT4 Sierra 1500. She adds that his monthly payment —$1,600 — is greater than her own.

    According to Experian, the average borrowing rate for a new vehicle was 7.03% in Q3 2023, up from 5.26%; for a used vehicle, the average was 11.35%, up from 9.38% last year.

    Arnold says she and her husband bought the AT4 in 2022 and yet they still owe $72,000 to $74,000 of the $78,000 purchase price.

    Arnold’s family’s car situation seems especially dire. She doesn’t provide enough information to explain how only about 20% of her own monthly payment is apparently being applied to the principal.

    What is true for every car buyer, however, is that, unlike your home, an automobile loses value the second you drive it off the lot. Car insurer Progressive estimates that cars lose 20% of their value within the first year, and continue to lose 15% every year until about the fourth or fifth year.

    For this reason, auto loans often end up “underwater” — a situation in which the outstanding principal is greater than the value of the car or truck.

    How to avoid high loan rates

    Arnold has decided to get rid of her Tahoe, though she doesn’t say whether her husband plans to give away his truck.

    “Do not pay so much for something that is so irrelevant,” she warns her followers.

    Arnold decided to ditch the Tahoe and buy an Audi in cash so she won’t have any more car payments. The reason she can do this — despite being in major car debt — is because her TikTok career has taken off.

    In one of her videos, Arnold shows that she made nearly $4,000 off of just two TikTik videos in March.

    Paying cash for a car is the best way to avoid any interest, but it’s not possible for most Americans.

    Read more: Generating ‘passive income’ through real estate is the biggest myth in investing — but here’s one surefire way to do it without breaking the bank

    Still, if you’re in Arnold’s position and don’t have a thriving TikTok career, there are still ways to get out from under your car payment, according to personal finance celebrity Dave Ramsey.

    Ramsey would endorse Arnold’s TikTok side hustle. He recommends getting an extra job so that you can make more payments on your auto loans.

    Ramsey would also like that Arnold plans to get rid of her Tahoe. He told a listener in a similar position that he ought to consolidate the auto loans on his multiple cars — and then sell some of them to pay off the remaining balance.

    The personal finance radio show host also says that you can go straight to the lender and negotiate with them on your rate. This must be done in-person.

    “Not on the phone and for God sakes not by email!” he says. “Go sit down and look ‘em in the eye.”

    What to read next

    This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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  • The real costs of buying a car – MoneySense

    The real costs of buying a car – MoneySense

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    Mark Kalinowski, a credit counsellor and financial educator at the Credit Counselling Society, says you need to know what you can afford when it comes to a car loan. “If you can’t pay for it and they repossess it, well, now your credit’s ruined for a long time,” he said. You can only afford so much credit based on your income level, so if you take on a car loan, that will eat away at other borrowing capacity such as a mortgage, Kalinowski said. 

    How much is a car? Add interest, among other things

    When shopping for a car, the numbers can come fast and furious and they can add up quickly. It’s important to keep the total cost of the vehicle in mind, Kalinowski said, not just the monthly or biweekly payment you will have to make. “One of the big things you see in dealerships is they don’t sell you the price of the car, they sell you the payments,” he said. 

    Additions like an extended warranty and undercoating may only add a few dollars a month to your payment, he says, but they can pile up to add significant costs to the overall price. “They’re going to roll [it] into the financing, so now you’re gonna pay interest on it as well,” he said.

    Gone are the days of easy credit and dealership offerings of 0% financing for new cars and trucks, so it’s important to shop around to ensure you’re getting the best deal you can on your loan, said Natasha Macmillan, director of everyday banking at Ratehub.ca.

    “It can save hundreds to thousands of dollars or more for a car or anything like that,” she said. 

    Compare personalized quotes from Canada’s top car insurance providers.All in under 5 minutes with ratehub.ca. Let’s get started.*You will be leaving MoneySense. Just close the tab to return.

    Should you get a car loan from your bank or the dealership?

    Kalinowski said borrowing from your bank instead of using the dealership financing may also give you some additional bargaining power.

    Macmillan added that a better credit score typically means a better interest rate, so if you delay your purchase to give yourself time to improve your rating, it could save you money.

    The term of the loan is also key. A longer term will mean lower monthly payments, but will raise the overall cost of the vehicle because you will be paying interest on the amount you borrow for longer.

    Kalinowski said his father told him not to borrow money to buy a new car for a longer term than the vehicle’s warranty.

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  • The Fed hasn’t touched interest rates since July, but they’re still moving. What that looks like for credit cards, mortgages and savings accounts

    The Fed hasn’t touched interest rates since July, but they’re still moving. What that looks like for credit cards, mortgages and savings accounts

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    Hinterhaus Productions | Digitalvision | Getty Images

    Savings accounts

    Higher rates mean that consumers have to pay more to service their debt, but it also means that banks pay higher rewards to savers. It’s one of the silver linings to the current rate environment, said Ted Rossman, chief credit card analyst at Bankrate.

    “There’s also been remarkable stability at the top of this market,” Rossman said. “The highest savings rate right now is 5.35%.”

    That top rate is considerably higher than the national average for savings rates overall, which has been just below 0.6% for the past two months. But even that overall average is more than double its level of 0.23% 12 months ago.

    Rossman added that plenty of high-yield savings accounts, mostly available online, are still paying close to or even above 5%. These kinds of accounts keep money easily accessible while earning solid returns and are great options for emergency savings.

    Certificates of deposit

    Interest rates on savings accounts are higher than they’ve been in decades, but there has been recent softening in returns on certificates of deposit, data from the U.S. Federal Deposit Insurance Corp. shows.

    The average yield on a 12-month certificate in March 2024 was 1.81%, down slightly from its high in December and January, according to the FDIC.

    Despite the dip, CDs are good savings vehicles that avoid risk but still provide a return if you’re willing to tie up your money for a set period of time, Rossman said. The current environment will likely remain good for savers until the Federal Reserve initiates its rate cuts.

    “There’s been remarkable stability at the top of this market, even though we expect cuts are coming,” he said. “These shorter-term rates don’t tend to move until the Fed moves.”

    Until then, savers should take full advantage.

    Credit cards

    The flip side to the positive environment for savers is the expensive credit card market: Consumers carrying balances on their cards face historically high rates. The average credit card rate has been well above 20% for the past 12 months and will continue to stay there for some time, Rossman said.

    “Sometimes rates bounce around a little bit if offers come on and off the market,” Rossman said, but “we’ve plateaued since that last rate hike as of late July.”

    The key for consumers to remember is that credit card debt is expensive, and that will still be true even after the rate cutting starts, he said.

    “The Fed is not going to come to your rescue on credit card rates,” Rossman said. “Even if rates fell a couple of points in a couple of years, they’d still be high.”

    His best advice for consumers is to prioritize paying off credit card debt, if possible with the help of a balance transfer card, which lets consumers carry balances from one credit card to another for a low fee and an extended period of no or low interest.

    The Fed is not going to come to your rescue on credit card rates.

    Ted Rossman

    Senior industry analyst, Bankrate

    Rossman added the offers from balance transfer cards continue to be very favorable with low fees and generous repayment windows.

    “The balance transfer market has been remarkably stable and strong,” he said. “It speaks to a strong job market and the strong economy. People are paying these bills back,” despite the fact that more consumers, on average, are carrying more expensive debt.

    Mortgage rates

    While savings and credit card rates are very sensitive to maneuvers from the Federal Reserve, the area that might see the most movement is housing.

    “Unlike some of these other products, mortgage rates tend to move in advance of the Fed because they tend to track 10-year Treasurys,” Rossman said. “It’s more about investor expectations for the Fed and for economic growth.”

    That’s reflected in the data. Mortgage rates peaked in October 2023 at about 8%, followed by a steady decline. And after a brief jump in February, they seem to be settling back to where they were at the beginning of 2024, when a 30-year fixed rate mortgage was about 6.6%.

    “We think there’s a good chance that the average 30-year fixed rate mortgage could be around 6% by the end of the year,” Rossman said, which would be a much needed reprieve for a highly competitive housing market that is still undersupplied.

    High mortgage rates have kept many sellers — who are locked into lower rates from years’ past — from putting their homes on the market. Lower rates could get them to list, Rossman said.

    “The closer we get to 6% and then eventually into 5% territory, that gets some people off the fence and they list their home and then inventory improves,” he said. “Then that gives some some relief on the price side for would-be buyers.”

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  • The Federal Reserve holds interest rates steady, with no immediate relief for consumers from sky-high borrowing costs

    The Federal Reserve holds interest rates steady, with no immediate relief for consumers from sky-high borrowing costs

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    The Federal Reserve announced Wednesday it will leave interest rates unchanged, delaying the possibility of rate cuts as well as any relief from sky-high borrowing costs.

    Overall, expectations that the Fed is pulling off a soft landing have increased, but that offers little consolation for Americans with high-interest debt.

    And now there may be fewer interest rate cuts on the horizon after hotter-than-expected inflation reports sent the message that “we are moving in the right direction, but we’re not there yet,” said Greg McBride, chief financial analyst at Bankrate.com.

    For consumers, that means “a very slow downward drift in savings rates but no material change in borrowing costs for credit cards, auto loans or home equity lines of credit,” McBride said.

    More from Personal Finance:
    Here’s when the Fed is likely to start cutting interest rates
    Nearly half of young adults have ‘money dysmorphia’
    Deflation: Here’s where prices fell

    Inflation has been a persistent problem since the Covid-19 pandemic, when price increases soared to their highest levels since the early 1980s. The Fed responded with a series of interest rate hikes that took its benchmark rate to its highest level in more than 22 years.

    The federal funds rate, which is set by the U.S. central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates they see every day.

    The spike in interest rates caused most consumer borrowing costs to skyrocket, putting many households under pressure.

    Even with some rate cuts on the horizon later this year, consumers won’t see their borrowing costs come down significantly, according to Columbia Business School economics professor Brett House.

    “The costs of borrowing will remain relatively tight in real terms as inflation pressures continue to ease gradually,” he said.

    From credit cards and mortgage rates to auto loans and savings accounts, here’s a look at where those rates could go in 2024.

    Credit cards

    Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. In the wake of the rate hike cycle, the average credit card rate rose from 16.34% in March 2022 to nearly 21% today — an all-time high.

    With most people feeling strained by higher prices, balances are higher and more cardholders are carrying debt from month to month compared with last year.

    Annual percentage rates will start to come down when the Fed cuts rates, but even then they will only ease off extremely high levels. With only a few potential quarter-point cuts on deck, APRs would still be around 20% by the end of 2024, according to Ted Rossman, Bankrate’s senior industry analyst.

    “If the average credit card rate falls a percentage point from its current record high of 20.75%, most cardholders would barely notice,” he said.

    Mortgage rates

    Although 15- and 30-year mortgage rates are fixed, and tied to Treasury yields and the economy, anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.

    But rates are already lower since hitting 8% in October. Now, the average rate for a 30-year, fixed-rate mortgage is near 7%. That’s up from 4.4% when the Fed started raising rates in March 2022 and 3.27% at the end of 2021, according to Bankrate.

    Doug Duncan, chief economist at Fannie Mae, expects mortgage rates will end the year at 6.4%, but that won’t provide much of a boost for would-be homebuyers.

    “The housing market is likely to continue to face the dual affordability constraints of high home prices and elevated interest rates in 2024,” Duncan said. “The problem is still supply. If rates come down and it ramps up demand and there’s no supply, the only thing that happens is that home prices go up.”

    Auto loans

    Even though auto loans are fixed, payments are getting bigger because car prices have been rising along with the interest rates on new loans, resulting in less affordable monthly payments. 

    The average rate on a five-year new car loan is now more than 7%, up from 4% when the Fed started raising rates, according to Edmunds. However, competition between lenders and more incentives in the market have started to take some of the edge off the cost of buying a car lately, said Ivan Drury, Edmunds’ director of insights.

    Once the Fed cuts rates, “that gives people a little more breathing room,” Drury said. “Last year was ugly all around. At least there’s an upside this year.”

    Student loans

    Federal student loan rates are also fixed, so most borrowers aren’t immediately affected. But undergraduate students who take out new direct federal student loans are now paying 5.50% — up from 4.99% in the 2022-23 academic year and 3.73% in 2021-22.

    Private student loans tend to have a variable rate tied to the prime, Treasury bill or another rate index, which means those borrowers are already paying more in interest. How much more, however, varies with the benchmark.

    For those struggling with existing debt, there are ways federal borrowers can reduce their burden, including income-based plans with $0 monthly payments and economic hardship and unemployment deferments. 

    Private loan borrowers have fewer options for relief — although some could consider refinancing once rates start to come down, and those with better credit may already qualify for a lower rate.

    Savings rates

    While the central bank has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate.

    As a result, top-yielding online savings account rates have made significant moves and are now paying more than 5% — above the rate of inflation, which is a rare win for anyone building up an emergency savings account, McBride said.

    Since those rates have likely maxed out, this is the time to lock in certificates of deposit, especially maturities longer than one year, he said. “There’s no incentive to hold out for something better because that’s not the way the wind is blowing.”

    Currently, one-year CDs are averaging 1.73%, but top-yielding CD rates pay over 5%, as good as or better than a high-yield savings account.

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